Samsung Electronics Co, Intel Corp and Texas Instruments Inc. will probably widen their lead over chipmaking rivals this year because they're investing the billions of dollars needed to compete in the US$141 billion industry, investors and analysts say.
Intel is opening factories that produce more chips from each silicon wafer and cut production costs by as much as 30 percent to stay ahead of Advanced Micro Devices Inc, its closest competitor in the computer microprocessor market. Similar spending will help Samsung, the world's No. 1 memory-chip maker, beat out rivals Micron Technology Inc and Hynix Semiconductor Inc.
"The chip industry is a high-stakes gamble that requires a lot of investment," said Takehiko Takachio, a senior portfolio manager at Kokusai Asset Management Co, which manages about Japanese Yen 470 billion (US$3.95 billion) in Japanese equities, including shares of chipmaker Toshiba Corp. "Those that invest for the future will be the winners."
Falling business spending and slowing global growth have cut sales of the personal computers and phone equipment that use 70 percent of the world's chips. Companies that invest now will be set to outsell their competitors as corporate spending and demand for advanced mobile phones revive chip sales later this year, analysts say.
Take Texas Instruments. The company, whose chips power half the world's mobile phones, invested US$800 million last year, mostly to upgrade wafer equipment. That dwarfed the US$180.5 million spent by National Semiconductor Corp, which also focuses on chips for wireless devices. In 2001, the industry's worst year ever, Texas Instruments invested US$1.8 billion.
* Intel is opening factories that produce more chips from each silicon wafer and cut production costs by as much as 30 percent
* Texas Instrumentsinvested US$800 million last year, mostly to upgrade wafer equipment.
"We think we're further ahead in products and performance than we were during the height of the last upturn," Texas Instruments CFO Bill Aylesworth said. "With our strong financial position, we knew we weren't jeopardizing the health of the company."
The company had US$2.59 billion in cash and marketable securities as of September, according to a filing with the Securities and Exchange Commission. By the same measure, National Semiconductor had US$686 million in November.
"If you're ever going to make a big bet, this is the time to make it," said Cody Acree, an analyst at Legg Mason Wood Walker Inc who rates Texas Instruments shares "buy" and said he doesn't own them. "It's not really a huge risk to shareholders."
Global chip sales will probably rise 12 percent this year to about US$174 billion after gaining just 1.4 percent last year, according to market researcher Dataquest Inc. That still trails gains in 2000, when worldwide chip sales climbed 37 percent to a record US$204 billion.
In 2000, capital spending on semiconductors surged 87 percent before falling for two straight years. Spending this year will probably rise 5 percent, according to IC Insights Inc.
"For 2003 as a whole I'm not very optimistic," said Egbert Jan Nijmeijer, who helps manage about 30 billion euros (US$31.4 billion) at Robeco Groep in Rotterdam, including Samsung shares. "There is still big price pressure as there is still overcapacity."
Most of this year's growth will go to chipmakers that are building more cost-efficient factories and by making chips for cellphones and digital cameras.
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